Countering the Menace of Counterfeits

In a development that brings to light some rather interesting issues, the Indian Government has accused Chinese companies of counterfeiting goods legitimately manufactured in India.

Noting that large Indian brands such as Godrej, Dabur and Raymond have been at the receiving end of this large-scale counterfeiting, the Government has reportedly told Parliament that it has raised this issue with the appropriate agencies in China.

As this article notes, this intervention could not have come at a better time, in light of the fact that customs authorities recently seized fake replicas of cosmetics sold by such popular brands as Ponds and Lakme worth crores of rupees.

To be sure, India is not the only country to have accused Chinese companies of selling counterfeit products in recent times. Last year, the U.S. Trade Representative warned Alibaba, the Chinese e-commerce giant, that its failure to clamp down on the sale of fake products could result in its online market being relegated to the “notorious markets list.”

Further, this is not the first time that India has accused Chinese companies of engaging in wide and pervasive counterfeiting. In 2009, a large consignment of fake anti-malarial generics seized by the Nigerian National Agency for Food and Drug Administration and Control bore the marking ‘made in India’ even though the fake medicines were manufactured by Chinese companies.

The prescient remark made by India’s then High Commissioner to Nigeria, Mahesh Sachdev, to the Commerce Secretary, GSK Pillai, merits emphasis: “While this is a case of a Chinese company exporting fake `Made in India’ labeled medicines which has been accidentally exposed, it is unlikely to be an isolated incident. Indeed there is no reason for Nigeria to be the only country to be receiving such consignments.”

What makes this development especially interesting is the fact that India was consistently the 5th largest exporter of counterfeit goods from 2011 to 2013 according to a recent report by the OECD and the European Union’s Intellectual Property Office.

This report certainly lends credence to India’s claim that China has emerged as the haven for counterfeiting, inasmuch as it acknowledges that China is the largest exporter of fake goods, accounting for 63.2% of the $461 billion global trade in counterfeit products.

At the same time, the report finds that India accounts for 1.2% of global counterfeit exports, bringing into sharp focus the need for the Indian Government to put in place a holistic and comprehensive regulatory architecture that is aimed, not just at ensuring that Indian companies do not get adversely impacted by this metastasizing menace, but also that Indian traders who engage in the manufacture of counterfeit products are appropriately punished.

At present, the primary legal instrument that seeks to curb the introduction of imported counterfeit goods in India is the IPR Enforcement Rules of 2007. Under the rules, a holder of IP rights is required to submit a form in the prescribed manner to an authorized customs officer, accompanied by an application fee of 2000 rupees, requesting that clearance for imported goods infringing the concerned person’s IP rights be suspended. Within 30 days of the receipt of the notice, the applicant has to be informed whether or not his application has been accepted. The minimum period for which the request, if sanctioned, will continue to hold good is one year. If the applicant’s request is accepted, the goods in question shall be deemed to be prohibited within the meaning of Section 11 of the Customs Act, and the only condition that the right holder must fulfill in order for the suspension to continue to remain in force is that she must join the proceedings within a period of 10 days of the suspension.

Interestingly, India is not the only country which is both a significant contributor to the problem of counterfeiting and also one of its hardest hit victims. As the report finds, even though no country is more responsible for the ubiquitous availability of counterfeit products than China, around 1.3% of the seizure of counterfeit products relates to the violation of IP rights of Chinese companies.

More worryingly, India’s effort to clamp down on the spread of counterfeit products manufactured in China could inadvertently result in parallel imports, which are a legally sanctioned and perfectly legitimate alternative to IP-protected products and inventions manufactured for the Indian market, being adversely impacted.

As we’ve noted on this blog before, the Central Board of Excise and Customs has issued a circular which makes it unambiguously clear that parallel imports are sanctioned by Section 107a(b) of the Patents Act, 1970 and Section 30(3)(b) of the Trademarks Act, 1999. As a result, the 2007 Rules are not applicable to such imports.

The issue of parallel imports has been a thorny one and has received sustained judicial attention over a substantial period of time, as we’ve noted on the blog here, here, here and here.

While it is imperative that Indian authorities take every possible measure within the framework of the law to deal with the spread of fake goods, let us hope that they do not forget, in trying to appear tough on the issue of counterfeiting, the critical distinction between counterfeiting and parallel imports which Aparajita eloquently characterized as the distinction between the black market and the grey market.

Although legal solutions would doubtless comprise an indispensable element in the fight against counterfeiting, a permanent and pragmatic solution cannot be found to this problem, especially in cyberspace, unless appropriate technological solutions are developed simultaneously. For as Lawrence Lessig famously declared, in the online world, the code is the law. To this end, Alibaba’s newly unveiled platform called the Intellectual Property Joint Force System is a promising development. This new portal aims to provide brands a pathway to get fake goods de-listed in an expeditious timeframe and creates a framework whereby Alibaba can check the veracity of suspicious listings with the brand in question and react in a prompt and decisive fashion thereafter.

In the final analysis, one hopes that this combination of innovative technological solutions and strict legal sanctions will help create a regulatory environment that can effectively counter the menace of counterfeiting while not whittling down the legally permissible choices of goods available to customers that is the sine qua non for any well-functioning market.

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